Hamish Rutherford had an article in the Dominion-Post yesterday in which he quotes the Prime Minister as claiming, on the one hand, that the recent high net migration inflows are a “time of great celebration” and, on the other hand, that most of the arrivals are something the country “can do nothing about”.    Rutherford had a follow-up piece yesterday with some comments from me and from a couple of other economists –  a nicely balanced group; one relatively negative, one relatively positive, and one “it depends”.

Actually, I suspect nobody much shares the Prime Minister’s glib “time to celebrate” sentiment.    You can be as much a believer in more liberal immigration, or even open borders, as you like, but it still repays stopping to look at just why things are as they are.  Ours isn’t that positive a story.

Of course, contrary to the headlines, the net inflows we’ve been seeing recently are not “record migration” in any meaningful sense.  Yes, the net PLT inflow is at a record level, and perhaps even as a share of the population at any time in the last 100 years or more.  But the limitations of the PLT numbers are well-known.  If one looks instead at the total arrivals less total departures, the inflow over the last year has been around 60000.  By contrast, in 2003 the annual inflow peaked at 80000.  New Zealand’s population is now around 15 per cent larger than it was in 2003, so the per capita inflow over the last year or so has only been about two-thirds the size of what we experienced in 2003.  So the current inflow is large, but not really at record levels.

And although the target number of residence approvals for non New Zealand (and non-Australia) has been 45000 to 50000 per annum for years (despite the growing population), only 43000 approvals were granted in 2014/15, compared with almost 53000 in 2001/02.   I think MBIE even objects to the use of the word “target”, but however one characterises the number that Cabinet set, it isn’t met precisely each year.  In fact, perhaps reflecting the relatively weak domestic labour market since the recession, 2009/10 was the last year in which residence approvals were above 45000.

And can we control the total net flow numbers?  Well, not really since New Zealanders are free to come and go, and of course any foreigners who has come here (needing advance approval) can also leave any time they like.    Since the trough in 2011/12, the increase in the net PLT flow has been roughly evenly split between New Zealand citizens and other citizens, but over the last 18 months the decline in the net NZ outflow has levelled off, and all the further increase has been down to increased net inflows of non New Zealand citizens.  At around 6500 in the last month, that net inflow probably is a record, even in per capita terms (SNZ don’t report the total migration data by citizenship).  Every non-New Zealand citizen coming to New Zealand needs the approval of New Zealand authorities.

It is worth bearing in mind that there is still a net outflow of New Zealanders each month.   The last times there were even modest inflows were 1983 and 1991, both occasions when Australia’s economy was in recession.  Given that the stock of New Zealanders living abroad is now much larger than it was in either 1983 or 1991, it would have been easier to envisage a larger net inflow of New Zealanders this time if our economy and labour market were really performing well.  But they aren’t.  We can’t rule out a small net inflow of New Zealanders at some point, but it hasn’t happened yet.

We can see the role that Australian conditions are playing by looking at the flows of New Zealand citizens to and from Australia, and the flows of New Zealand citizens to and from other countries. If the story were one of a strongly-performing New Zealand, I’d have thought we might expect to see New Zealanders flocking home from all corners of the globe (and not leaving for the rest of the world).    New Zealand citizen arrivals for the rest of world (other than Australia) are at quite a low ebb –  well below, for example, what we saw in 2003 when our unemployment rate was dropping sharply.

And New Zealand citizen departures to the rest of the world, while quite notably lower than they were in earlier decades (tighter restrictions in place like the UK?) have been pretty stable for the last six years.

Instead, all the action in the New Zealand citizen flows is in those between New Zealand and Australia, suggesting that it is conditions in Australia that are at the heart of the story.

The unemployment rate in Australia is around 6 per cent, and there is now a much greater awareness than previously that the rules in Australia have changed for New Zealanders.  Any one going now, and who has gone in the last 15 years, is largely on their own if, for example, they can’t find a job, or they lose their job.  And their kids are often in some limbo, not really New Zealanders and unable to become proper Australians either.  Without that sort of welfare backstop if things go wrong, it is much more attractive than it was for anyone remotely risk averse to stay at home until the Australian labour market is much more robust.  It may be less attractive to try even then than it once was.  And that is so even though average incomes and real living standards in Australia are higher than those here, and that gap has shown no sign of narrowing.   But it is not that to any material extent there is a net outflow of New Zealanders from Australia (although the uptick in New Zealanders coming home isn’t something we’ve seen before), it is simply that for the time being the outflow to Australia has dried up.

Given that the adverse income gap has not narrowed and that our unemployment rate is high, nothing in that is a cause for celebration in New Zealand.  If anything, rather than reverse.  The more highly productive Australian economy has been an attractive option for New Zealanders for decades – enabling New Zealanders to improve their lot (and taking downward pressure off factor returns in New Zealand).  If that alternative outlet is less easy or safe to take advantage of, New Zealanders as a whole are a little worse off.  If, for example, people relocating from Invercargill to Auckland were made ineligible for welfare benefits,  Invercargill as a whole would be worse off economically –  even though some of the parents in Invercargill might be pleased to have their kids and grandkids a bit closer to home.

And what of New Zealand’s economic performance relative to Australia?  Real GDP per hour worked is a pretty good timely measure of relative productivity performance .  As the statistics stand at present –  who knows what revisions will eventually show –  the New Zealand performance in the last few years has been really bad by comparison with Australia’s.  Data suggesting no productivity growth for four years, while Australia has gone on achieving productivity growth, just reinforces a sense that the reduced outflow of New Zealanders to Australia –  partly temporary and probably partly permanent  –  is something bad for New Zealanders, not something to celebrate.

It needn’t always be so.  I wish we had the sort of strong sustained economic performance, built on rapid productivity growth, that was putting us a path to income convergence (once again) with Australia.  If so, I reckon we’d see the net outflow turn into a material sustained inflow.  That would be cause for celebration.  This is not.

And all that with barely any discussion of the non-New Zealander flows.  But just briefly.  The Prime Minister correctly notes that foreign students are an export industry.  But I’d be more reassured by that if it were not explicit government policy to encourage foreign students, not on the intrinsic strength and quality of our own (middling at best) universities, but as a pathway to residence here.  Since there is no evidence that such permanent immigration to New Zealand has represented a net economic benefit to New Zealanders –  neither MBIE nor Treasury nor relevant ministers have been able to cite anything remotely convincing –  it seems that we are really just back in the export incentives business.  Instead of writing cheques, we write (the possibility of) a visa.  Export incentives “worked” in the pre-liberalisation period to –  people do what they are incentivised to do so we got more subsidised exports –  but it still wasn’t good policy.  It wasn’t under Muldoon and Rowling, and being done by Steven Joyce and John Key doesn’t change the proposition.  I’m not, at all, suggesting we should discourage export education, but let it stand on its own merits if the current numerical success is really to be a cause for celebration.

The Prime Minister also reckoned that “many of the arrivals fell into either highly skilled or investor categories”.   In the last year, just 1353 residence visas were issued under the investor and entrepreneur categories  (about a third as many as were being granted in the early 2000s) and as I noted in an earlier post MBIE’s research has highlighted just how questionable the net economic benefit of these migrants has been.

 One of the MBIE papers is on the web.  It discusses some work on investor migrants –  who already, in effect, buy their way into New Zealand.  The aim of the programme is to import people with business expertise and entrepreneurial skills, presumably to boost productivity in New Zealand.  And yet in these surveys of people at various stages of the investor migrant process  (and  in which respondents must have been at least partly motivated to give the answers MBIE wanted to hear, even if results were anonymised), 50 per cent of the money investor migrants were bringing in was just going into bonds, and only 20 per cent was going into active investments.  We aren’t short of money, but may be of actual entrepreneurial business activity.  And 70 per cent were investing only the bare minimum required or just “a bit more”.  And these people aren’t attracted by the great business opportunities in New Zealand, but rather by our climate/landscape and lifestyle.  It doesn’t have the sense of being a basis for transformative growth.

Set alongside the 1353 investor and entrepreneur visas were 4477 parent visas last year.

As for the highly skilled, I have covered previously and, in a succession of posts, at somewhat tedious length the question of just how highly skilled our skills-based immigration programme is.   Here, from the tables in MBIE’s excellent resource, Migration Trends and Outlook, are the numbers for 2014/15 –the top few occupations for the principal applicants for residence applications under the skilled migrant stream.

It doesn’t have a strong sense of something to celebrate – the highly skilled of the world flocking to New Zealand and in the process strengthening our own skills levels and productivity.

And finally, the Prime Minister is quoted as saying

“Show me a country which is booming around the world where more people leave it than come to it”

Glad to Prime Minister.  Consider Poland, which has been one of the strongest performing OECD countries in the last decade, and which has had steady net migration outflows.  Poland is gradually catching up to the living standards in Western Europe, but it has a long way to go.  In the meantime, the opportunities for many Poles are still better abroad.  Perhaps it is easy to dismiss Poland as just an ex-communist country, but it has done what New Zealand has failed to do –  make substantial progress towards converging with living standards elsewhere in the advanced world.  In 1989, Polish incomes were estimated to be less than a third of those in the United States.  Now they are almost half.

Bulgaria and Romania are less striking stories, but they are also countries with substantial net migration outflows –  again, the opportunities abroad are better than those at home.  But both countries have managed to grow materially faster than New Zealand since 2000, and have matched New Zealand’s per capita income growth in the years since John Key has been in office.

Immigration policy is not, by any means, the whole story.  It probably isn’t even the bulk of the story in these countries.  But net inflows of people aren’t always good and net outflows aren’t always bad.  It depends.    There is no real reason to believe that the current net inflows to New Zealand –  or even the reduction in net outflows to Australia –  are cause to celebrate.  I suspect that, if anything, the inflow is compounding the underlying productivity problem.  But there is certainly no sign that it is either a response to us having solved those problems  ourselves (and thus being on some convergence path back to the rest of the advanced world) nor that the inflow will be any more likely to bring about a transformative lift in productivity than the previous inflows over the last 25 (or 75) years have.

Last night the Goethe Institute and the New Zealand Initiative hosted a panel discussion on aspects of immigration.  The focus was not on the economic aspects  –  my arguments that our immigration policy has acted as a drag on economic performance got a mention only in the question time –  and I found it something of a challenge to pull together some moderately coherent thoughts around the implications of large scale movements of people, and what that means for cultures and societies –  indeed, whether those concepts themselves have much meaning or instrumental value.

Two of the speakers were themselves immigrants –  one had first come as a student in the late 1980s, and the other as a refugee from Rwanda after the mass murder of 1994.  They spoke from their experiences, and both offered interesting, if somewhat contrasting, perspectives.

Rob McLeod, former chair of the Business Roundtable (and countless other boards and committees) made what is probably best described as an in-principle case for open borders, although he pulls back from that in practice.  We had only a relatively short time each to present our own perspective, so I hope I’m characterising him fairly.  His principles for shaping immigration policy were

1. Diversity is good; prejudice is bad. Exclusion and restriction are costly.
2. A high premium on liberty and freedom to choose
3. An obligation on everyone to obey the law.

His proposition was that the scope of the market should be extended as far as possible, and that those countries that had been open to immigration had generally benefited from it.  In the cases of possible exceptions, such as South Africa and Fiji, the roots of the problem had rested in coercion.

McLeod went on to note that more liberal immigration would generally enhance world welfare, and that world welfare should count for something in domestic policy setting.  He briefly made a case for immigration as one tool to counter terrorism, which he observed had (some of) its roots in poverty.  (My mind kept running towards Baader Meinhof, the Red Army Faction, and the IRA –  and that scion of a wealthy Saudi family, Osama bin Laden.)     I wasn’t quite sure how much more liberal McLeod would be in practice if he were in charge of immigration policy, but he did suggest that perhaps immigration quotas and targets might be something that should be negotiated multilaterally.

I was more sceptical.

My approach over recent years has been shaped by increasing doubts as to whether large-scale immigration has ever done very much economically for those who were in the country before the immigration began.   There is an arguable case in respect of the European migration to the United States, Canada, Australia and New Zealand.  Average incomes of the indigenous populations of those four countries are plausibly higher than they would have been if the colonies of large scale settlement had never been established.  But, even to the extent that is so, it is mostly because a new and more economically productive set of institutions  and people came in and largely displaced or replaced what was already there.  That might be the historical basis for modern New Zealand, but it isn’t a particularly attractive model to shape immigration policy debates today.  It was, essentially, a phenomenon of imperialism.    Mass migration generally was.

In my own remarks last night, I put a lot more emphasis on the part that cohesive cultures play in enabling societies –  state, clubs, churches or whatever –  to function effectively.  Cultures  –  broadly defined – develop, and are sustained, for a reason –  they encapsulate the tacit knowledge and understanding that help societies to work better.  They capture the things that unite people, in ways that strengthen the ability of those societies to manage the inevitable differences and difficult choices.

It isn’t clear to me that democratic societies can function very well in the longer-term without a reasonably strong common culture, or as a fall-back a single very dominant one.  Authoritarian ones might –  one could think of the Ottoman Empire.  Of course, we haven’t many strong and stable democracies at all (so the sample is small) but they seem particularly uncommon in the minority of states where there are major divides along racial or religious grounds.  Perhaps the only example I can think of at present is Israel –  and who would really be surprised if for one reason or another that experiment did not last many more decades.

The issue here is not about denying the gains from trade or the benefits of difference.  And since are no human clones, we all interact with (marry, work with, play sport with) people who are different than us.  And we gain in the process.  The question is more one about human nature, and the way in which strong well-functioning communities tend to form among those with whom we have important things in common.    And those strong common bonds enable communities to better do the things they exist for.  In the case of the state, we might think of that is mutual protection (external defence, law and order), mutual support (whatever form a society’s welfare system takes), and all the decisions states and communities take that affect the allocation of property rights.

In small communities –  eg families    the commonality might result from blood ties.  I might disagree forcefully with my brother but nothing changes the fact that he is my brother.  At the level of large communities, blood ties don’t bind us together.  It has to be about shared values (eg religions, including secularism) and, at very least, shared experiences and shared historical reference points.  Maintaining that commonality is perhaps never easy, but it is likely to be relatively easier with a relatively stable and homogeneous population, not one constantly displaced by large inflows of people from often quite different backgrounds (not better or worse, but different).  The challenge seems likely to be particularly great for free and democratic societies.

I argued that large scale immigration programmes are best seen as social engineering (and about as likely to prove useful as most such large scale government interventions).    Rather than allowing societies to evolve organically, negotiating their conflicts from a base of shared experience and mutual common destiny, immigration programmes put the government hand on the scales and tilt things, often rather sharply, one way or the other.   Our history was like that –  every Anglo immigrant who arrived in the years when Britons had fairly open access, tilted the scales, and the balance of power in society, further away from Maori.  The same went for Canada and Australia.   That may have suited the majority, but what of the minority that had once been the majority?   The limits of knowledge should forcefully confront all putative social engineers, who all almost always well-intentioned but (being human)  rarely recognise the long-term consequences of the choices they foist on us.

I’ve argued that we would be better off economically if we cut back quite severely our immigration programme.  But I think that if we did so, we’d also be better positioned as a society to build and sustain a degree of cohesion, drawn from shared experience and commitment, that would enable us to confront future challenges more effectively, and to deal with the permanent tension between the interests of Maori in New Zealand and those of the rest of the population.

Here is a fuller version (only five pages or so) of what I said last night.

The Sharing Game

And, yes, I did see the Prime Minister’s comment that recent record migration was “a reason to celebrate”.  I (mostly) disagree with him, but am out of time today, so will offer some rather narrower economic observations on his claim tomorrow.

In a moment of weakness a while ago I agreed to participate in a Goethe Institute and New Zealand Initiative panel discussion. “The Sharing Game” later this month.  Here is a link to event for anyone in Wellington who would like to come along.

The topic is written in a perhaps rather Germanic style

Sharing and exchange are basic human cultural practices. They play as big a role in poor countries as in affluent societies. But when do we share – and with whom? What social and cultural developments emerge from the various forms and manifestations of sharing and exchange in times of immigration from cultures that are foreign to ours? How is New Zealand’s face changing through an ever increasing influx from immigrants – rich and poor? Is a bicultural society a utopia?

But I take it as a discussion and debate around diversity and its implications for New Zealand.   I presume I was invited as someone who has been a bit sceptical about the economic benefits to New Zealand of our large-scale immigration programmes.  Since most of those arguments were independent of who the migrants were –  they would apply if the migrants were all from the Home Counties –  the diversity issues are not ones that I have previously focused on very systematically or for very long.

But in thinking about the topic, and reflecting on the importance of openness to new ideas in the historical success of nations, I’ve also been wondering what a nation state means today.  What, for example, if anything does it mean to be “a New Zealander”, (is it just citizenship of this legal entity)?  Are there things that unite us, and how does an immigration programme like ours affect that over time?    Is the decline of religion – itself once an expression of a society’s shared understandings – relevant to the answer?   Quite how is the distinctive position of Maori in New Zealand affected?

This post is an advertisement rather than one offering any answers.  But as I was reflecting on the issue this afternoon and reading around the (unpersuasive to me) open borders literature I stumbled on this stimulating blog post by the Canadian (but British immigrant to Canada) economist Nick Rowe on whether we should best think of the nation as a club.

Don’t think of a country as an area of land. Think of a country as a club, to which a group of people belong. Nomadic tribes were not attached to any particular area of land. Settled agriculture on scarce land is a recent and contingent fact.

Clubs provide club goods to their members. Club goods are (at least partly) non-rival and (at least partly) excludable. Mutual defence is the most obvious club good that countries provide their members, but they often provide others too.

Membership of a club brings with it both rights and obligations. Membership of a club is itself a good. It’s an asset that provides a future flow of benefits (and costs). Membership of a successful club, that non-members want to join, is a very valuable good. Should that very valuable good be priced at zero?

Open borders is not about free trade in land or labour. It’s not about physical geography. Open borders is a proposal that membership of a club be a non-excludable good, and must therefore be priced at zero. Anyone can become a member of any club, without the club being required to give its consent. Countries may not charge non-members a one-time enrolment fee (or cherry-pick applicants) to become a member. Anyone who applies for membership must be granted membership, and pay exactly the same annual schedule of dues (taxes) as existing members to benefit from using the club goods.

Rowe uses the image to build a possible case for an entry fee for migrants, perhaps a substantial one. But it is also prompts a thought around whether there is a sense in which the club has, or needs to have, some meaningful common identity or sense of purpose (the basis for the provision of public goods).  I’m not sure, but as Rowe he notes later in the comments (as much worth reading, in many cases, as the post itself).

My thoughts themselves are not at all clear on the migration question. I just think that the Open Borders people are missing some important stuff. They think of open borders as something like free trade (they say in labour, but I would say in land). But countries are a lot more than just land. Even thinking of countries as clubs seems to me to be leaving out a lot of what is important. Countries are also homes, and extended families. We are born into one, and changing countries is a big deal, both for the migrant and for the hosts (if there are a lot of migrants).

I’m a migrant myself. My views have changed over the years. I have become more small-c conservative. I don’t like too much change, and I can respect others who don’t like too much change either. Countries, and communities, and social institutions, don’t just create themselves overnight.

I find it an interesting perspective to reflect on, and to wonder about the implications of.  I’m suspect the other panellists will be more optimistic than I am, but I wonder if any will lean strongly towards an open borders approach for New Zealand?